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Riehs v. Rutgers Casualty Insurance Co.


January 5, 2010


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-6530-06.

Per curiam.


Submitted December 7, 2009

Before Judges Reisner and Yannotti.

Defendant Rutgers Casualty Insurance Company (RCIC) appeals from a September 29, 2008 judgment entered by Judge Paley, finding Rutgers guilty of bad faith refusal to settle a claim and awarding $134,167 in damages and attorneys fees. We affirm.


RCIC, which insured defendants Shar and Glen Williams, refused to offer its $100,000 policy to settle an automobile negligence lawsuit filed by plaintiffs Donna and Joseph Riehs. Despite receiving a steady stream of Rova Farms*fn1 letters from plaintiffs' attorney, as well as multiple letters from defense counsel before and during the auto suit advising of potential weaknesses, RCIC never offered more than $30,000 to settle the case. Furthermore, RCIC did not put its insureds on notice of the possibility of an excess verdict or give them an opportunity to contribute to a settlement.

Although the jury found that Donna's injuries did not meet the verbal threshold, they awarded approximately $186,000 on her claim for lost wages. That verdict was affirmed on appeal. Mr. and Mrs. Williams then assigned to plaintiffs their claim against RCIC for alleged bad faith refusal to settle the auto accident case.

The bad faith claim was tried without a jury, on the basis of stipulated facts and documents including the deposition of RCIC's claims adjuster, and the in-court testimony of Barry Goldstein, RCIC's senior vice-president in charge of claims.

Goldstein admitted that when RCIC opened its file on the auto lawsuit, the assigned adjuster set a $75,000 reserve on the case. Setting a reserve results in that amount being accounted for as a potential liability on the company's balance sheet. According to Goldstein, the assigned adjuster Adrienne Archie would normally evaluate the settlement value of the case. Goldstein admitted that there was no documentation in RCIC's claims file to indicate that Archie ever determined the settlement value of the case, or that she ever consulted with RCIC's in-house settlement committee about a settlement proposal. However, at the 2008 bench trial, Goldstein testified that he remembered personally evaluating the case in 2003 and concluding that a verdict was not likely to exceed the policy limits.

Goldstein additionally admitted that there was no evidence in RCIC's file that the insureds were notified about the possibility of an excess verdict. He also conceded that the insureds were never notified that plaintiffs had made a demand in excess of the policy.

In a comprehensive written opinion dated April 16, 2008, Judge Paley concluded that RCIC had not made a good faith effort to evaluate the risk of an excess verdict and acted in bad faith in failing to settle the claim within the policy limits. The court noted that there was ample evidence that a verdict could exceed the limits of the policy. RCIC placed a $75,000 reserve on the case, a non-binding arbitration resulted in an award of $96,000, and RCIC's counsel advised the company that the Riehs' expert's testimony could result in a "higher verdict."

Despite this evidence, RCIC rejected numerous opportunities to settle within the $100,000 limit. The plaintiff initially proposed a settlement of $200,000 and later demanded $100,000; subsequently, the plaintiff was willing to accept $35,000, but RCIC still refused to offer more than $30,000. The judge did not believe Goldstein's testimony concerning his alleged efforts to evaluate the case. Judge Paley also considered the fact that Rutgers failed to notify its insureds of the potential for an excess verdict and failed to keep them informed as to the settlement negotiations.

Following his determination that RCIC acted in bad faith, Judge Paley held a second plenary hearing to determine the issue of counsel fees. In an opinion dated September 10, 2008, Judge Paley awarded $27,500 in counsel fees and $650 in costs.


Our review of the trial judge's determination is limited:

Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence. It has otherwise been stated that "our appellate function is a limited one: we do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." [Rova Farms, supra, 65 N.J. at 484 (citations omitted).]

We owe particular deference to the trial judge's credibility determinations. Ibid.; State v. Locurto, 157 N.J. 463, 470-74 (1999).

On this appeal, RCIC argues that plaintiffs failed to produce expert testimony to establish their bad faith claim. RCIC also contends that its decision to offer considerably less than its policy limit was based on a realistic assessment of the case. Having reviewed the record, we find that these contentions are without merit and do not warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We affirm substantially for the reasons stated in Judge Paley's April 16, 2008 opinion. We add the following comments.

In addressing the insurer's duty of good faith, the Court in Rova Farms stated:

"[A] decision not to settle must be a thoroughly honest, intelligent and objective one. It must be a realistic one when tested by the necessarily assumed expertise of the company." This expertise must be applied, in a given case, to a consideration of all the factors bearing upon the advisability of a settlement for the protection of the insured. While the view of the carrier or its attorney as to liability is one important factor, a good faith evaluation requires more. It includes consideration of the anticipated range of a verdict, should it be adverse; the strengths and weaknesses of all of the evidence to be presented on either side so far as known; the history of the particular geographic area in cases of similar nature; and the relative appearance, persuasiveness, and likely appeal of the claimant, the insured, and the witnesses at trial. [Rova Farms, supra, 65 N.J. at 489-90 (citations omitted).]

When an insurer is found to have acted in bad faith by failing to settle a claim within the policy limits, the insurer is responsible for any judgment in excess of the insured's policy. Id. at 496-97.

While an insurer is required to use its expertise in evaluating claims against its insureds, this does not necessarily mean that a bad faith claim must be established by expert witness testimony. None of the cases defendant cites support that proposition. Nothing in this record suggests that the evaluation of plaintiffs' personal injury lawsuit was an esoteric issue, see Scully v. Fitzgerald, 179 N.J. 114, 127 (2004), or that a judge would be unable to decide the issue without expert testimony.

RCIC's reliance on Kelly v. Berlin, 300 N.J. Super. 256 (App. Div. 1997), is misplaced. Kelly was a medical malpractice case, in which the plaintiff claimed that he settled his auto accident case for too small an amount because his doctors failed to diagnose an additional injury that he allegedly sustained in the accident. Id. at 262. There was no empirical evidence of the augmented settlement value of the auto case, because Kelly had never asserted a claim based on the additional injury and therefore had never tried to settle such a claim. Ibid.

In that context, we held that plaintiff needed an expert to testify that the doctors deviated from the standard of care in their diagnoses, and he needed an expert on the issue of valuing his auto accident claim with and without the additional injury. Id. at 270-71. However, the latter holding was based on our conclusion that a lay jury could not evaluate the settlement value of plaintiff's auto accident claim without expert testimony. Kelly does not apply here, where the trier of fact was a judge, and there was ample evidence of the settlement value of the case.

Moreover, we are bound by the trial judge's factual findings, which are supported by substantial credible evidence. Most important is the judge's conclusion that RCIC did not engage in any meaningful analysis of its potential liability.

Not only did the judge disbelieve Goldstein's testimony that he evaluated this claim, but RCIC's claims adjuster had no documentation to support her evaluation. Further, she could not have properly evaluated the claim for lost wages, because she erroneously believed that Donna could not recover lost wages unless her pain and suffering claim satisfied the verbal threshold.

Furthermore, in violation of its fiduciary duty, the insurer did not give its insureds an opportunity to contribute to a settlement or otherwise protect themselves against an excess verdict. See Rova Farms, supra, 65 N.J. at 496; Yeomans v. Allstate Ins. Co., 130 N.J. Super. 48, 52 (App. Div. 1974). RCIC never advised the insureds of plaintiffs' initial $200,000 settlement demand or any of their later pre-trial settlement demands. Apparently, it was not until the middle of the trial that the insureds even became aware of the risk that they might be liable for an excess verdict. Immediately after the verdict, defense counsel noted in a November 19, 2003 letter to the adjuster that during the trial, the insureds had "expressed their concern to me regarding the potential for any excess exposure."

Despite these expressions of concern, and letters from defense counsel sent during the trial pointing out potential weaknesses in the case, the RCIC adjuster refused to offer more than $30,000 to settle the case. We find no basis to disturb Judge Paley's well-reasoned conclusion that RCIC did not engage in good-faith settlement negotiations.

Finally, Rutgers contends that plaintiff is not entitled to counsel fees, because her attorney backdated a retainer agreement. We find no abuse of discretion or other error in Judge Paley's decision to award counsel fees. See Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 444 (2001). Even if the retainer letter was backdated, plaintiffs' counsel submitted other documentation substantiating that he was retained, and specifying his hourly rate. Further, he provided a detailed certification of services plus billing records documenting the work he performed and the time he spent. See Starkey v. Estate of Nicolaysen, 172 N.J. 60, 62-63 (2002). RCIC's contentions on this issue warrant no further discussion here. R. 2:11-3(e)(1)(E). We affirm for the reasons stated in Judge Paley's September 10, 2008 opinion.


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